The Reader in International Corporate
Finance offers an overview of current thinking on six
topics: law and finance, corporate governance, banking,
capital markets, capital structure and financing
constraints, and the political economy of finance. This
collection of 23 of the most influential articles published
in the period 2000-2006 reflects two new trends: 1)
interest in international aspects of corporate finance,
particularly specific to emerging markets, and 2) awareness
of the importance of institutions in explaining global
differences in corporate finance.

The Reader in International Corporate
Finance offers an overview of current thinking on six
topics: law and finance, corporate governance, banking,
capital markets, capital structure and financing
constraints, and the political economy of finance. This
collection of 23 of the most influential articles published
in the period 2000-2006 reflects two new trends: 1)
interest in international aspects of corporate finance,
particularly specific to emerging markets, and 2) awareness
of the importance of institutions in explaining global
differences in corporate finance.

This Note examines the corporate roots
of the financial crisis in East Asia. It summarizes the
findings of a study of corporate financial performance in
East Asian economies - Hong Kong, Indonesia, the Republic of
Korea, Malaysia, the Philippines, Taiwan (China), and
Thailand. To allow a consistent cross-border analysis of
financial risk and performance, the study used as benchmarks
key financial performance ratios for corporations in France,
Germany, Japan, the United States, and Latin America.

Project financing of independent power
producers (IPPs) may seem the only solution to the
intractable problem of getting private credit to the power
sector. In the developing world, however, the public-private
partnership in project-financed IPP ventures has been slow
to produce results. To achieve substantive progress in IPP
financing, limited recourse project financing will have to
evolve toward structures with greater balance sheet support.
First, balance sheet support by the main partners in an IPP
financing offers greater security to lenders and provides
easier access to long-term debt. Second, balance sheet
support by IPP sponsors can open access to public equity
markets, which are deeper and generally cheaper. Third,
increased corporate balance sheet support is a corollary to
the restructuring in the world s power sectors. Greater
corporate finance support will make it possible to raise
private capital for independent power financing from wider,
deeper, and cheaper sources. This Note recommends the
following strategies: 1) Encourage the formation of large...

The literature shows that good corporate
governance generally pays for firms, for markets, and for
countries. It is associated with a lower cost of capital,
higher returns on equity, greater efficiency, and more
favorable treatment of all stakeholders, although the
direction of causality is not always clear. The law and
finance literature has documented the important role of
institutions aimed at contractual and legal enforcement,
including corporate governance, across countries. Using firm
level data, researchers have documented relationships
between countries corporate governance frameworks on the one
hand and performance, valuation, the cost of capital, and
access to external financing on the other. Given the
benefits of good corporate governance, firms and countries
should voluntarily reform more. Resistance by entrenched
owners and managers at the firm level and political economy
factors at the level of markets and countries partly explain
why they do not.

The authors examine the impact of bank
supervision on the financing obstacles faced by almost 5,000
corporations across 49 countries. They find that firms in
countries with strong official supervisory agencies that
directly monitor banks tend to face greater financing
obstacles. Moreover, powerful official supervision tends to
increase firm reliance on special connections and corruption
in raising external finance, which is consistent with
political and regulatory capture theories. Creating a
supervisory agency that is independent of the government and
banks mitigates the adverse consequences of powerful
supervision. Finally, the authors find that bank supervisory
agencies that force accurate information disclosure by banks
and enhance private monitoring tend to ease the financing
obstacles faced by firms.

Ever since the rise of large firms in
the 18th century, debate has been raging about how to
combine economic efficiency and productivity with socially
desirable behavior of firms. This paper reviews the debate
starting with the classic corporate governance argument
about shareholder rights. It discusses the potential
incentives to exploit other stakeholders unduly and examines
some mechanisms, beyond contracts and regulation, to cope
with this exploitation. In this light it considers
reputational mechanisms, using the example of corporate
social responsibility, and changes to the constitution of
firms, with emphasis on the nonprofit form of enterprise.
Based on evidence so far, the for-profit firm with
mechanisms assuring sound shareholder rights remains
preferable to the alternatives. However, scope for
experimentation with mechanisms such as different classes of
shareholders with differing voting rights may be socially
useful, which suggests that global corporate governance
principles thus should not be prescriptive in detail.

Focus 6 covers the experiences of two
high-profile cases in Chile and Panama and analyzes reforms
that shape new legislation and protect minority
shareholders. The first article in this publication explores
the impact the reforms to the regulation of corporate
governance in 2000 on the capital market in Chile. After
seven years of implementing the new law it is possible to
consider, with a more informed vision, what the positive and
negative elements that strengthening the regulation of
corporate governance have brought. The experience of Panama
is also an ironic commentary on the Chilean experience. It
is the case for reform to protect minority shareholders
which was introduced by the Panamanian securities regulator.
In reaction to this, some interested individuals rejected
the reform proposal in theory, tying up the initiative in
the courts, but accepted it and followed it in practice. And
continue to do so even today. The history, regulation and
the practice of takeovers in Panama presents interesting
paradoxical and contradictory features...

Corporate governance (CG) success
stories in Vietnam are part of the International Finance
Corporation’s ongoing efforts to raise greater awareness of
the merits of CG. These success stories in Vietnam can serve
as a guiding light for the immediate benefit and long-term
value of CG to corporate development. The Law on Enterprise
2005, implemented in July 2006, marked the first
introduction of a formal legal framework on CG in Vietnam.
CG practice in Vietnam is expected to undergo sweeping
changes when the revised Law on Enterprise (LOE) 2014 comes
into effect on 1st July 2015. The revised LOE 2014 ensures
independence of the Board of Directors, seeks to eliminate
conflict of interest, and to improve accountability as part
of Vietnamese government’s drive to ensure better CG.

This study explained the diversity of corporate financial practices in two nations. Existing studies have emphasized the reliance on equity finance in U.S. firms and bank loans in Japanese firms. In fact, patterns of corporate finance were much more complex. Financial institutions, which were created by national economic policy and regulation, affected corporate financial practices, but corporate financial practices often differed from what policymakers expected. Differences in corporate financial practices between nations also reflected differences in the mixture of industries in each nation. Many factors such as the amount of fixed capital, the process of production, the level of risk, the degree of innovation, and the importance of the industry in the national economy affected corporate financial practices. In addition, corporate financial practices within each nation differed from firm to firm due to managers’ considerations about stock ownership, which would affect their control power; corporate finance was closely related to control over management through ownership. ^ To explain these complexities of corporate financial practices, the study linked corporate finance with the development of financial institutions in the United States and in Japan. While financial institutions affected corporate financial practices...

This study explained the diversity of corporate financial practices in two nations. Existing studies have emphasized the reliance on equity finance in U.S. firms and bank loans in Japanese firms. In fact, patterns of corporate finance were much more complex. Financial institutions, which were created by national economic policy and regulation, affected corporate financial practices, but corporate financial practices often differed from what policymakers expected. Differences in corporate financial practices between nations also reflected differences in the mixture of industries in each nation. Many factors such as the amount of fixed capital, the process of production, the level of risk, the degree of innovation, and the importance of the industry in the national economy affected corporate financial practices. In addition, corporate financial practices within each nation differed from firm to firm due to managers’ considerations about stock ownership, which would affect their control power; corporate finance was closely related to control over management through ownership. To explain these complexities of corporate financial practices, the study linked corporate finance with the development of financial institutions in the United States and in Japan. While financial institutions affected corporate financial practices...

The globalization of corporate finance also points to other challenges. As emerging-market corporations have expanded their international operations, they have increased their exposure to interest rate and currency risks. Concerns are growing that several countries in emerging Europe and Central Asia are experiencing a credit boom engendered by cross-border borrowing by banks of untested financial health and stamina. Some of these banks have increased their foreign exchange exposure to worrisome levels, a concern that warrants special attention from national policymakers. Given banks' critical role in domestic monetary systems, policymakers should step up their regulation of foreign borrowing by banks. The projected slowdown in global growth and tighter monetary policy in high-income countries are expected to make financing conditions for developing countries somewhat less favorable in coming years. While a soft landing is the most likely outcome, there are risks. Global development finance is the World Bank's annual review of global financial conditions facing developing countries. The current volume provides analysis of key trends and prospects, including coverage of capital raised by developing country based corporations.

The globalization of corporate finance also points to other challenges. As emerging-market corporations have expanded their international operations, they have increased their exposure to interest rate and currency risks. Concerns are growing that several countries in emerging Europe and Central Asia are experiencing a credit boom engendered by cross-border borrowing by banks of untested financial health and stamina. Some of these banks have increased their foreign exchange exposure to worrisome levels, a concern that warrants special attention from national policymakers. Given banks' critical role in domestic monetary systems, policymakers should step up their regulation of foreign borrowing by banks. The projected slowdown in global growth and tighter monetary policy in high-income countries are expected to make financing conditions for developing countries somewhat less favorable in coming years. While a soft landing is the most likely outcome, there are risks. Global development finance is the World Bank's annual review of global financial conditions facing developing countries. The current volume provides analysis of key trends and prospects, including coverage of capital raised by developing country based corporations.

This is a supplement to second
IFC's toolkit: developing Corporate Governance codes of
best practice. The focus of second toolkit is the
development of codes of corporate governance. This
supplement focuses narrowly on how to use scorecards to
measure the observance and implementation of such codes. It
does not cover the full panoply of governance assessment
tools. This supplement provides practical guidance and a
step-by step approach on how to develop a corporate
governance scorecard. It also presents different approaches
to scorings based on the experience of different scorecard
users in different countries. This supplement is not
intended to be a full manuscript of all the available tools
or assessment techniques but more a guidance on various
possible uses and applications of scorecards It is, however,
intended to cover most of the issues that might confront any
institution, regulator, stock exchange, and so on, that has
in mind to develop a scorecard and to provide some practical
guidance on how to approach those issues. This supplement
provides practical guidance and a step-by step approach on
how to develop a corporate governance scorecard. It also
presents different approaches to scorings based on the
experience of different scorecard users in different
countries. The supplement also shows how scorecards are
adapted to local circumstances and the local corporate
governance framework.

Weaknesses in the corporate sector have
increasingly been cited as important factors in financial
crises in both emerging markets and industrial countries.
Analysts have pointed to weak corporate performance and
risky financing patterns as major causes of the East Asian
financial crisis. And some have argued that company balance
sheet problems may also have played a role, independent of
macroeconomic or other weaknesses, including poor corporate
sector performance. But little is known about the empirical
importance of firm financing choices in predicting and
explaining financial instability. Firm financing patterns
have long been studied by the corporate finance literature.
Financing patterns have traditionally been analyzed in the
Modigliani-Miller framework, expanded to incorporate taxes
and bankruptcy costs. More recently, asymmetric information
issues have drawn attention to agency costs and their impact
on firm financing choices. There is also an important
literature relating financing patterns to firm performance
and governance. Several recent studies have focused on
identifying systematic cross-country differences in firm
financing patterns - and the effects of these differences on
financial sector development and economic growth. They have
also examined the causes of different financing patterns...

The structures, institutions, and legal
framework of corporate governance are developed and
administered by individuals whose behaviors are shaped by
cultural and personal concepts of hope, ambition, greed,
fear, uncertainty, and hubris, as well as by the social
ethos. A problem arises when these influences do not conform
to the regulatory prescriptions of corporate governance.
This private sector opinion explores the dynamics of culture
and corporate governance in India by calling attention to
three areas where the clashes are strongest: related-party
transactions, the promoter's or large
shareholder's actions, and the board's
nominations, deliberations, and effectiveness.

This thesis conducts empirical studies related to financial institutions and corporate finance. Specifically, I look at banks’ lending behavior, performance of leveraged buyouts (LBOs), and the cultural impact on cross-border LBOs. Following an introduction in Chapter 1, in Chapter 2, I study U.S. commercial banks’ herding behavior in their domestic loan decisions, where herding is defined as the extent to which banks deviate from the industry average lending decisions and collectively increase or decrease loans to certain categories. I find significant evidence that herding exists and that banks tend to herd more when the economic condition is less favorable, regulation is tight, and when banks are struggling . Overall, these findings support the hypotheses of information asymmetry and regulatory arbitrage as motivations for herding.
Chapter 3 provides a comprehensive study of LBO deal characteristics, participants’ involvement, and their impact on target firms’ performance. I find that better post-buyout operating performance is associated with larger amounts of leverage added during the LBO process, tighter LBO loan covenants, and equity contribution by target firms’ incumbent management. LBOs are more likely to exit through an IPO or a sale if they use more bank debt with tighter covenants and are sponsored by private equity (PE) firms of high reputation. These results suggest that the main source of value creation in LBOs is the reduced agency costs through the disciplining effect of debt...